In the most general sense, banks are still approving credit card applications. However, the FICO score requirements being imposed by many banks is leaving a large number of consumers in the lurch. On our website, we’ve seen application approval rates for balance transfer credit cards drop dramatically over the past three months. In some instances, approval rates appear to be as much as 75% lower than they were back in May.
While consumers applying for credit cards are met with unpleasant denials, consumers with active credit card accounts are being met with complete disdain. Despite the fact that the Prime Rate – which is used to determine credit card rates – is many percentage points lower than it was a year ago, many banks are continuing to dramatically raise rates on existing customers.
Rate squeezes are leading consumers to seek out new cards with lower interest rates. Unfortunately, few credit card companies are interested in taking on the new business, especially via balance transfers. And this trend is worsening, despite the return to profitability by many banks.
Unfortunately, tighter credit card approval standards are likely here to stay. With new credit card laws due to take effect in February of 2010, banks are literally scrambling to find ways to profit from the credit card business. This was never a problem before, as this type of lending was a huge profit creator for banks. However, the new credit card laws will change the way credit card companies due business in significant ways, and it appears as if the banks have yet to figure out how they will profit under the new restrictions.
In addition to burden of new regulations, record high defaults and continually rising unemployment pose signicant risks to existing loans, which is why many credit card companies are jacking up rates and slashing credit lines. It is also why consumers who have very good and even excellent credit are getting denied for new credit cards.
Hopefully, a slowdown in unemployment and credit card defaults will entice credit card companies to lend again. But in the meantime, consumers stuck with high interest credit card balances that are unable to get approved for balance transfer credit cards should focus on paying down their debt as quickly as possible to avoid massive interest expense and to improve their credit scores so their credit utilization ratios make them appear less of a risk to other credit card companies.
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